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 / Summer 2011 / Issue 63(originally published by Booz & Company)


Strategic Bets

Given the high stakes and uncertainty of a strategic bet, what is the difference between a leader who makes a strategic bet and a gambler who goes “all-in” at the poker table? From a strictly analytical point of view, the gambler’s calculations are easier.

Whether the game is poker or roulette or baccarat, a gambler deals with concrete probabilities. Business leaders don’t have the same controlled and stable context for their strategic bets. Each play for the leader is unique. The timing is different and the context is different, and this puts extraordinary demands on leaders. In earlier years, the emphasis for strategic decision making was on analytics — which subtly de-emphasized the role of leadership. But analytics can carry a company’s executive team (and its board) just so far in their deliberations of whether to make a strategic bet. Indeed, gauging the odds of a strategic bet’s success by looking at past successes can be fallacious, because the economic landscape is likely to have changed.

In making a strategic bet, the leader’s conviction should be grounded, first and foremost, in a clear understanding of the future potential of the company. This understanding should be bolstered by quantitative forms of due diligence and analysis, alongside a careful qualitative approach that examines the bet through a variety of lenses and possible scenarios. This type of large-scale entrepreneurial judgment is a habit of mind that must be nurtured; it cannot be developed quickly. In an age of strategic bets, identifying and reinforcing that judgment will be the central task of leadership development.

The need to make strategic bets, and be prepared for them, will ultimately change the way many business leaders regard strategy. In addition to their existing concerns — their company’s functional strengths, arrangement of business units, and portfolio — there will now be the presumption of a more dynamic, ambiguous, and difficult business environment. The only way to manage this environment, in a collected and capable manner, is to think in terms of external strategy, to continually cultivate an outside-in view of the company in which strategic bets are not automatically resisted, but are instead dispassionately evaluated.

The level of risk a strategic bet carries with it will feel uncomfortable to many. Indeed, if it feels thoroughly comfortable, it’s probably not enough of a bet. But business, by definition, involves discomfort. You never have the control you want; you only have opportunities. You must be willing to step forward and risk your enterprise, boldly but thoughtfully, for the sake of its future. Andrew Liveris may not deliver a return on acquisition as quickly as Wall Street wants, and his strategic bet may be criticized for some time, but it has positioned Dow to capture growth on a worldwide basis. The market is just beginning to see what he saw years ago. He will be ready in a few years to make his next big move. That is leadership.

Reprint No. 00063

Author Profiles:

  • Ram Charan is a Dallas-based advisor to boards and CEOs of Fortune 500 companies and the author or coauthor of 16 books, including the bestseller Execution: The Discipline of Getting Things Done (with Larry Bossidy; Crown Business, 2002), Boards That Deliver: Advancing Corporate Governance from Compliance to Competitive Advantage (Jossey-Bass, 2005), and The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation (with A.G. Lafley; Crown Business, 2008).
  • Michael Sisk is a writer based in New York. He was a contributing writer on Merge Ahead: Mastering the Five Enduring Trends of Artful M&A, by Gerald Adolph and Justin Pettit (McGraw-Hill, 2009), and the editor of The Whole Deal: Fulfilling the Promise of Acquisitions and Mergers (Booz & Company, 2006).
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  1. Greg Farrell, Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America (Crown Business, 2010): A Financial Times reporter tells the dramatic story of one of the strategic bets mentioned in this article.
  2. A.G. Lafley and Ram Charan, The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation (Crown Business, 2008): Procter & Gamble’s great strategic bet began when Lafley became CEO.
  3. Paul Leinwand and Cesare Mainardi, The Essential Advantage: How to Win with a Capabilities-Driven Strategy (Harvard Business Press, 2010): Why pursuing an effective strategy often means making a strategic bet by cutting away those parts of your business that are incoherent.
  4. Bob Rice, Three Moves Ahead: What Chess Can Teach You about Business (Even if You’ve Never Played) (Jossey-Bass, 2008): Chapter 8 covers the “exchange sacrifice,” in which you trade something that seems valuable now for a better advantage.
  5. For more thought leadership on this topic, see the s+b website at:


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